ECL at individual deal level best reflects any future deterioration in credit quality

How to improve pwECL using Machine Learning?

The most significant impact on overall bank management is caused by the introduction of the Expected Credit Loss approach to reflect credit risk in external accounting.

IFRS 9 calls for the segmentation of financial assets on the basis of similar credit risk characteristics. For each segment, the expected credit loss needs to be calculated taking probability-weighted macroeconomic scenarios into account.

If a risk provision is too high, the income in the profit and loss statement will be reduced. This will reduce the capital in the balance sheet and finally the covering funds in legal reporting. Less covering capital will finally limit the entity in doing new business which will have an impact on future profit and loss.

As an alternative to portfolio building (segmentation), we provide the ECL calculation on the basis of machine learning.